The June natural gas futures contract took the EIA’s 85 Bcf injection report as bullish news for about a half-an-hour in Thursday morning action before trading lower for the remainder of the afternoon to settle at $6.324, down 13.1 cents on the day.

During the first hour of trading, the prompt month etched out a new June high of $6.57, eclipsing the previous $6.52 high that was set last Thursday (May 13). Prior to the afternoon sell-off, trading looked as if it intended to copy Wednesday’s 30.1 cent run-up.

Classifying the day’s trading as “a pop and then a drop,” Tim Evans of IFR Energy Services said the mixed price response Thursday might be appropriate because the storage number came in a little below the 90-95 Bcf market consensus, but a little above the 80 Bcf five-year average. The 85 Bcf build for the week ended May 14 fell exactly in the middle of the five-year average injection of 80 Bcf and last year’s injection of 90 Bcf.

“The market initially popped to a new high in reaction to the news, but soon shifted into downward correction mode,” Evans said. “Volatility remains high as the legacy of the prior two wide-ranging sessions. We do continue to see longer-term prospects as constructive for further price gains here, with summer heat and hurricanes to limit injections to storage.”

However, Evans pointed out that without short-term fundamentals to match that view and keep the nose of the market pointed higher, futures could be prone to correction. “There may be a lull now, ahead of the storm,” he said.

Despite futures notching a new June high, Evans said that it will likely take a second effort in order to clear the $6.52 hurdle by a more robust margin, lifting the market’s sights to the longer-term selling projected for the $6.88-7.00 zone.

“On the downside, the market has held psychological support at $6.30, at least for now, providing a shelf for some quieter consolidation within the recent range,” he said. “Renewed weakness would turn attention back to the $6.10 low from Wednesday as the key support. Overall, the market has simply become erratic here. It is best to give it room until it makes up its mind exactly what it wants.”

In a Thursday morning report, Craig Coberly of GSC Energy in Atlanta said that he did not expect Wednesday’s strong rally and wasn’t quite sure what to make of it. “The obvious question is whether it is still part of the corrective process or the beginning of another substantial advance,” Coberly said. “Unfortunately, at the moment I don’t see any high probability way to tell which is going on. If gas continues its sharp advance early [Thursday] and moves above $6.53, evidence will be on the side that it is the beginning of a larger rally.” If that happens, Coberly said he would look for a move into the $6.80-7.00 level.

“Under Elliott Wave theory, a correction to a rally unfolds in a down, up, down pattern. On a smaller scale, the ‘up’ portion subdivides into a smaller up, down, up pattern,” he said. “Keeping this in mind, if [Wednesday’s] rally is part of the correction, I’d expect some decline early [Thursday] ($6.30??) then another rally that is likely to reach or slightly exceed the $6.53 high. This would complete the ‘up’ portion of the larger correction. Gas would then decline in the final ‘down’ move,” he said.

While the natural gas storage injection reported by the Energy Information Administration came in under industry expectations, Kyle Cooper of Citigroup said a build within his estimated range of 84-94 Bcf would be considered bearish from a temperature adjusted standpoint and would continue to place inventories on track to exceed 3,100 Bcf by the end of October.

Working gas in storage now stands at 1,388 Bcf, which is within the five-year historical range, according to EIA estimates. Stocks are now 398 Bcf higher than last year at this time and 15 Bcf below the five-year average of 1,403 Bcf.

Once again, the East region led the injection charge by contributing 53 Bcf. The Producing region and the West region followed with 21 Bcf and 11 Bcf contributions, respectively.

©Copyright 2004 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.